Global Insight Perspective | |
Significance | With domestic sales plunging, sales also falling in most of their main foreign markets and the problem of the strong krona versus the dollar which has devalued exports in 2008, Volvo and Saab are known to be in major financial difficulty right now. |
Implications | GM has never managed to make an annual profit out of Saab, and Volvo's profitability under Ford has fluctuated wildly. As both U.S. carmakers are now fighting for their own survival, now could be the time when both are finally forced to address the situation and dispose of their Swedish operations, despite the underlying brand value that both Volvo and Saab still hold. |
Outlook | For the time being, Ford and GM continue to deny that they have any plans to sell Volvo and Saab. This stance could quickly change, however, were it to become a key condition of the U.S. government bail-out. In that instance, it is unlikely that a buyer for either brand would be found quickly given the crisis that the entire industry is currently facing. |
Dire Straits in November
Registrations of new passenger cars tumbled by 36.14% in Sweden in November 2008 compared to the previous year. According to the national vehicle manufacturers' association, BilSweden, just 17,616 new cars were registered during the month compared to the 27,705 new cars that were registered in November 2007. That takes cumulative registrations for the first 11 months of the year down to 236,826 units, which is 14.2% lower or almost 40,000 fewer new cars than were registered in the year-earlier period.
Swedish giant Volvo, which is of course owned by Ford, is still the dominant brand on its home market, taking an almost 19% share in November and more than 20% in the first 11 months. Its smaller Swedish rival Saab, owned by General Motors (GM) is still the country's second-best selling marque, with Saab taking 7.9% of the market in November and 8.1% for the YTD. However, both carmakers saw their monthly sales fall by more than the market average last month, with Volvo's dropping by almost 40% year-on-year (y/y) and Saab's by 45%. Likewise for the year-to-date (YTD), both brands have been outperformed by the market, with Volvo losing more than one-fifth of its 11 month sales and Saab losing 16.4% of its. This means that as well as losing out on thousands of unit sales so far in 2008, both Volvo and Saab will also have lost small amounts of home market share to foreign brands over the course of the year.
Domestic Brands' Performance in November and YTD 2008 | ||||||||
Nov 2008 | Nov 2007 | % Change | % Share | YTD 2008 | YTD 2007 | % Change | % Share | |
Volvo | 3,549 | 5,912 | -39.96 | 18.77 | 44,474 | 55,735 | -20.2 | 20.19 |
Saab | 1,335 | 2,434 | -45.15 | 7.90 | 18,710 | 22,374 | -16.37 | 8.10 |
Total Market | 17,616 | 27,705 | -36.41 | 100 | 236,826 | 276,044 | -14.2 | 100 |
Source: BilSweden | ||||||||
As well as the difficulties they are facing in their domestic market, Sweden's two carmakers are also in dire straits abroad. Both have been hit hard by the collapse of the U.S. market which until now has been each of their single biggest global markets. As well as vastly reduced sales volumes in the United States, the remaining cars they do export from Sweden and sell there have at times become deeply unprofitable thanks to the strength of the Swedish krona versus the U.S. dollar.
The other major global market for both brands is the United Kingdom. Here, Volvo is flourishing with its 10-month sales up by 14.2% in a new car market that has fallen by 8.8%, meaning that the brand has won itself new share in this cut-throat market. Saab, on the other hand, has seen its U.K. sales plunge by more than 30% in that time.
Ford and GM Ask for Help
According to the Financial Times (FT), this situation has led Volvo and Saab's parent companies to approach the Swedish government for financial assistance. In doing so, the newspaper speculates, "GM and Ford want to bolster the two marques' finances in anticipation of selling them" as the Detroit carmakers grapple with a cash crunch that threatens their survival. Quoting unnamed sources familiar with the discussions, the report claims that Volvo's Chief Executive Stephen Odell and Saab's Managing Director Jan-Ake Jonsson have spoken separately to top Swedish ministers and other officials about securing funds.
The FT goes on to say that Ford and GM will both tell the U.S. Congress of their long-term plans to dispose of their Swedish operations this week when they present detailed business and financial plans to support their request for US$25 billion of emergency funding. As far as GM and Saab goes, this speculation reiterates similar newswire reports that were circulating last week (see United States: 28 November 2008: GM May Drop Three Brands as Part of Bail-Out Package; GM Europe to Cut Costs by 10% in 2009).
The Swedish government is now said to be considering the allocation of some 2 billion kronor (US$248 million) in direct aid or loan guarantees, the FT report says, although it is treading carefully in order not to violate European Union (EU) state aid rules. The newspaper also quotes one unnamed source as stating that Saab's Jonsson "has been talking to government about loan guarantees, and maybe even taking an equity stake in Saab." In an attempt to butter the government up, GM has also raised the possibility of bringing more of Saab's future production back home to Sweden, it went on to say, which would reverse earlier decisions to move some output to Germany and Mexico.
Outlook and Implications
The automotive industry is of paramount importance to the Swedish economy, being a major source of employment and a significant contributor to GDP, therefore it is clear that authorities will be examining all of these issues extremely carefully. Indeed, in the past the government has indicated that indirect support would be provided in times of need in order to ensure the health of this important economic contributor. With other national governments, including those of the United Kingdom, Germany, France and Spain all considering the possibility of helping out their own automotive industries in an effort to protect employment, it is almost certain that Swedish authorities will come up with some sort of aid package.
However, if they do so, it is clear that a raft of requirements will be placed on Volvo and Saab's parent companies, both of which have been criticised at times in the past for failing to retain the "Swedishness" of their brands and more importantly, for failing to invest sufficiently in them and for taking too much employment out of the country. This applies more to GM and Saab than it does to Ford and Volvo, with the long-term volume future of Saab's Trollhättan factory in the south of the country having looked doubtful for a long time.
For the time being, Ford and GM carry on insisting that neither of their Swedish arms are up for sale. The truth is that such rumours have been circulating for the best part of this decade on and off and, with the rumours having always been denied. The difference this time, however, is that both Detroit carmakers are teetering on the brink of survival themselves, and are both believed to be in serious danger of running out of cash altogether in the next 6–12 months if something dramatic does not change. As well as simply no longer being able to afford to financially support their loss-making Swedish dependents, a key caveat of Ford and GM receiving a public bail-out in the United States could be that American taxpayers' money will not be used to fund overseas operations. With both carmakers desperate to get their hands on this aid money, they are likely to do whatever it takes to make sure this happens, even if it includes calling time on Sweden at last.